Deposits from governments, quasi-government bodies and national oil companies provide around 10 to 35 per cent of banks' non-equity funding in the six-nation Gulf Cooperation Council, Moody's Investors Service estimates.

Those deposits, which tend to be cheaper for banks than tapping wholesale funding markets, keep the banks highly liquid while boosting their profitability.

The plunge of oil prices since last June threatens that comfortable picture. GCC governments, which were obtaining around 90 per cent of their income from oil exports, now have much less fresh money to deposit with banks, and may have to withdraw some to cover budget deficits.

In the worst case, this could trigger a liquidity shortage, reducing the banks' ability to lend to companies and hurting Gulf economies.

So far, however, the danger is being averted - partly because governments appear to be managing their funds carefully to limit the pressure on banks. Deposits are not falling nearly fast enough to put serious pressure on banking systems, and interbank money rates remain ultra-low, showing total liquidity is still ample.

The one-year Saudi interbank offered rate sank to 0.981 per cent this week, its lowest since October 2011. United Arab Emirates and Qatari money rates have stayed similarly soft.

"The oil price drop has not materially impacted bank lending in the region thus far, and there are no signs of liquidity abating with pricing holding fairly firm," said Steven Perry, global head of debt markets and syndications at First Gulf Bank , one of the UAE's biggest lenders.

"I also don't expect pricing to necessarily move up because of potentially lower deposits in the first half."

Bank lending growth in several countries is slowing: Saudi banks' private sector claims rose 11.6 per cent from a year ago in January, the slowest rise since December 2011, while Qatar's 5.3 per cent total credit growth was the lowest in several years.

But bankers and economists see the lending slowdown as a natural adjustment after years of rapid growth, not the result of a lack of funds available for loans.

"We might see Gulf banks being a little more selective in lending. They are likely to adopt a more conservative stance toward loans to the private sector, and particularly to retail," said Standard & Poor's credit analyst Timucin Engin. But lending to state-linked projects will remain strong, he added.

DEPOSITS

The impact of low oil prices can be seen in total deposits at Saudi commercial banks, which fell 2.0 per cent month-on-month in January, the biggest drop in over a year. Deposits in Qatar fell 2.2 per cent in January; in the UAE, December deposits edged up only 0.5 per cent from September, slowing from quarterly growth rates of 4 to 5 per cent seen early last year.

If oil prices stay low over the coming year, the two smallest and financially weakest GCC economies, Bahrain and Oman, could see bigger deposit drops and face heavier pressure on liquidity. Their governments lack the ample resources of their neighbours and may be forced to draw more money from the banking system to pay their bills.

But the big, wealthy Gulf governments have several ways to handle low oil prices without running down commercial bank deposits. One is using funds deposited at the central bank; the Qatar central bank's obligations to the government shrank 46 per cent from a year earlier to 23.90 billion riyals ($6.57 billion) in January, their lowest level in two years.

Governments can also run down assets held abroad in their huge sovereign wealth funds and bring the money home - something which could actually increase liquidity in the domestic banking system rather than reducing it.

Saudi Arabia, which projects a record state budget deficit of $38.7 billion for 2015 due to cheap oil, is widely expected to cover at least part of that deficit by selling foreign assets, a strategy it has adopted during lean times in the past.

It may already have started doing so; net foreign assets at the Saudi central bank, which acts as the country's sovereign wealth fund, edged up just 1.2 per cent from a year earlier to 2.725 trillion riyals ($727 billion) in January.

Asset growth has come down from double-digit rates seen in 2013. One reason is appreciation of the US dollar, which has reduced the value of assets held in other currencies such as the euro, but Saudi Arabia may also be selling some assets to cover expenses at home.

Last month central bank governor Fahad al-Mubarak said authorities were considering whether to cover the budget deficit by using their fiscal reserves, borrowing from the domestic financial market "which is characterised by a liquidity abundance and a low lending cost", or a combination of both.

If the Saudi government did embark on a major programme of domestic borrowing to cover its deficit, that could tighten liquidity somewhat, but perhaps not dramatically.

The anticipated start later this year of US interest rate hikes, which Gulf central banks are expected to imitate because of currency pegs to the US dollar, may have more of an impact than cheap oil in tightening banking system liquidity.

"During the second half of 2015, if oil remains at current pricing levels and clients focus on expansionary capex (capital spending), then borrowing costs may edge up," Perry said.

Even then, however, the effect may be minor. "Even if the Fed increases the interest rates, in the short end you are looking at an increase of around 10 to 25 bps, which is not going to materially impact funding costs," said a senior banker at a foreign institution in the Gulf. – Reuters
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Saudi Arabia's subtle change of energy policymaker line-up since the accession of new King Salman in late January appears to give the king's inner circle a firmer hand on the kingdom's oil strategy than previous rulers have enjoyed.

The most notable change was the promotion of the king's son Prince Abdulaziz bin Salman, long a member of the No 1 crude exporter's Opec delegation, to the role of deputy oil minister from assistant oil minister, a post he had held for many years.

On the same day, King Salman formed a new body replacing the Supreme Petroleum Council and appointed another son, Prince Mohammed bin Salman, to head the new Supreme Council for Economic Development.

There are no indications that those moves will lead to changes in the fundamental way the kingdom makes its oil decisions or diminish the influence of veteran oil minister Ali Al-Naimi.

However, the king is clearly laying the ground for a generational shift in how Riyadh develops its energy and economic strategies.

"This would ensure that, whether it is a domestic policy through Prince Mohammed and the economic council or international oil policy through Prince Abdulaziz, it is still very closely guided by the king himself," said Sadad Al-Husseini, a former senior executive at state oil giant Saudi Aramco and now an energy consultant.

WHO'S NEXT IN LINE?

There is little merit in speculating about when Al-Naimi, who turns 80 in August, will retire or whom King Salman will choose to replace him.

Conventional thinking is that the ruling Al Saud family views the oil minister's job as so important that giving it to a prince might upset the dynasty's delicate balance of power and risk making oil policy hostage to princely politicking.

Saudi Arabia has had only four oil ministers since 1960, and none of them has been a royal.

The most prominent minister before Al-Naimi was Ahmed Zaki Yamani, who held the position from 1962 to 1986.

But since Abdulaziz's promotion, some diplomatic and Saudi sources have suggested the prince's lengthy experience in the sector might overcome what has always been seen as the impossibility of appointing a royal to the post of oil minister.

Abdulaziz, who is in his mid-50s, was appointed "deputy minister of petroleum and mineral resources at the rank of minister", according to a royal decree on January 29.

"This has increased speculation about whether this would mean Abdulaziz might be the next oil minister," a diplomatic source said.

"Before the promotion, the thinking was that it was probably a 90 percent chance for Falih and 10 percent for Abdulaziz," the source said, referring to Aramco head Khalid Al-Falih. "Now the dialogue has shifted."

Whatever King Salman has in mind for Abdulaziz, however, it seems clear that his son will remain a core component of the kingdom's energy team, along with other key players such as Al-Falih.

Since his appointment as chief executive of the oil company in 2009, Al-Falih has been regarded as one of a handful of Saudi figures whose views are closely watched by traders and analysts for any insight on the kingdom's oil thinking.

Al-Naimi took the reins at the oil ministry after a long career at Aramco, pointing towards a path by which the ruling family keeps highly experienced technical experts involved in wider energy strategy.

HOW THINGS WORK

The exact mechanics of Saudi decision-making have always been obscure, but there is a broad understanding that the king has the final say in a process that involves building consensus among top royals based on the advice of senior technocrats.

When it comes to oil, under the late King Abdullah that process involved the Supreme Petroleum Council, which included the crown prince, the foreign, interior and finance ministers, Al-Naimi and Aramco's chief.

But in one of his first acts as monarch, King Salman abolished that body and set up the Supreme Council for Economic Development to take over its duties, as well as those of another committee that focused on economic reforms.

The move was seen as an effort by the king to streamline policy-making by binning redundant committees that often included the same officials and replicated each other's work.

The new council has 22 minister members, including Al-Naimi.

Saudi oil policy -- especially when it comes to relations with the rest of the 12-member Organization of the Petroleum Exporting Countries, production and exports -- is ultimately decided by the king, market observers say.

But such decisions are based mainly on recommendations and consultations with the Ministry of Petroleum, top royals, senior advisers and technocrats at other related ministries such as finance and foreign affairs.

"Whenever the policy changes, it is not simply top down. This is still the result of studies and recommendations prepared by the Ministry of Petroleum and only becomes a national policy when they are reviewed and approved by the king," Husseini, the consultant, said.

Analysts and industry sources say the new council is likely to be more involved in setting domestic energy policies rather than anything that affects the global oil market, which has seen the price of Brent crude drop almost 50 percent since June.

It is too soon to tell what sort of influence Prince Mohammed will wield over the council, or how far he will defer to the advice of Al-Naimi and his eventual successors.

However, by making royal court chief and defence minister Prince Mohammed, his 35-year-old son, the new economic council's chairman, King Salman has given a relatively unknown official a big voice in crafting Saudi oil policy.

"He is a young minister and has the full trust of the king. He has also proven to be a pragmatic business leader. But being the head of the new council does not eliminate the role of the 22 minister members," said Mohammad Al Sabban, a former senior adviser to Al-Naimi.

The decisions of the new economic council "will most likely be adopted by consensus", he added.

Opec heavyweight Saudi Arabia has held steady since the January 23 death of Abdullah with its strategy of allowing the market to correct itself without cutting output despite a steep price drop, drawing public criticism from some other oil producers.

Demonstrating such continuity has long been important to the absolute monarchy at moments of change, something King Salman underscored by keeping Al-Naimi, despite a wide-ranging reshuffle.

Al-Naimi was the driving force behind Opec's November decision not to cut output and instead fight for market share.

On February 25, Al-Naimi said oil demand is growing and markets are calm, indicating that he feels vindicated.

"There will be no change in the Saudi oil policy. I am glad that finally Saudi Arabia proved to everyone that whatever (decision) was taken in November along with other Opec members was right," said Sabban. - Reuters
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Mobile devices with broadband connectivity could prove the panacea in the global effort to bring educational opportunities to people everywhere, especially the world’s poorest, or most isolated communities, a report said.

Worldwide, over 60 million primary-school age children do not currently attend school; almost half that number never will, according to the UN Broadband Commission for Digital Development, which held its 11th meeting at Unesco headquarters in Paris yesterday (March 2).

A report by the Commission’s Working Group on Education, led by Unesco, indicated that the situation worsens as children get older, with over 70 million not enrolled in secondary school. And while classroom computers can help, lack of resources remains critical.

If an average of eight children shares each classroom computer in OECD nations, in Africa teachers can struggle to share each computer among 150 or more pupils. But with increasingly sophisticated mobile devices now packing more computing power than the famed ‘supercomputers’ of the late 1990s, the Commission believes broadband-connected personal wireless devices could be the solution.

ITU figures show that mobile broadband is the fastest growing technology in human history. The number of mobile phone subscriptions now exceeds the world’s total population of around seven billion, and active mobile broadband subscriptions exceed 2.1 billion – three times higher than the 700 million wireline broadband connections worldwide.

Even more encouragingly, most of this progress has taken place in the developing world, which has accounted for 90 per cent of global net additions for mobile cellular and 82 per cent of global net additions of new Internet users since early 2010.

“Education is one of the most powerful uses to which broadband connectivity can be put,” said ITU secretary-general Houlin Zhao.

“For the first time in history, mobile broadband gives us the chance to truly bring education to all, regardless of a person’s geographical location, linguistic and cultural frameworks, or ready access to infrastructure like schools and transport.

“Education will drive entrepreneurship, especially among the young – which is why we must strive harder to get affordable broadband networks in place which can deliver educational opportunities to children and adults,” he said.

“Every day, everywhere, women and men are inventing new ways to use broadband, mobile telephones and computers to be empowered, more autonomous and free,” said Unesco director-general Irina Bokova.

“We need to tap this inventiveness to improve education, especially for girls and women. But we have a long way to go. Two thirds of illiterate adults are women, and two thirds of the world’s out-of-school primary-age children are girls. This is a huge injustice, and a gap that we must fill. The continued expansion of broadband combined with technology can help us make giant strides towards this.”

President Paul Kagame stressed that broadband should be regarded as a basic utility, like water and electricity.

“In Rwanda, investing in ICTs has been indispensable to the attainment of our development goals. Broadband enables business and social entrepreneurs to find ways to offer world class education at low cost, to populations that have never had access,” he said.

“These centres of knowledge already exist, but in order for developing countries and isolated communities, to access and use them productively, they will need faster, more reliable, and more affordable Internet. The same principle extends to government more widely, particularly in delivering essential services. Broadband technology can enhance public administration efficiency and accountability to citizens, no matter where they live.”

President Kagame was joined by co-Chair Carlos Slim Helú, who asked Commissioners to consider whether the power of ICTs was being sufficiently exploited in today’s school environments.

“Broadband and ICTs are now available in many schools around the world – but are we seeing a concrete impact in the quality of education?” he said.

“We need to be sure that the potential of broadband for education is fully leveraged so that successful initiatives, such as new online course platforms, and many valuable education and training contents, become quickly available to people worldwide. Technology should be used for inclusion, and we should make vigorous efforts to ensure this.”

Dr Nasser Marafih, Group CEO, Qatar-based telecom leader Ooredoo, said: “Ooredoo believes in the power of mobile broadband to enrich people’s lives, and education is a key area where we can make an immediate impact.”

“Our companies are supporting educational efforts across our markets, delivering interactive lessons directly to people’s mobile and devices, and this report underlines the need for all operators to continue to enhance networks to reach under-served communities with educational material,” he added.- TradeArabia News Service
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